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SEC Commissioner Gallagher: SEC threatened by Dodd-Frank

Daniel GallagherSEC Commissioner Daniel Gallagher said last week that the SEC’s independence is facing the threat of a “constant stream of external influences” under Dodd-Frank and with the creation of the Financial Stability Oversight Council.

Gallagher said that Congress, which created the SEC to oversee the securities market, has normally allowed the SEC to freely exercise its authority and avoid implementing “minutely detailed mandates,” but since the passage of Dodd-Frank, the SEC is now responsible for 100 very technical rules to be finalized under tight deadlines, according to Compliance Week.

“Although the Commission continues to stare down at an overflowing plate of Dodd-Frank mandates in addition to its other responsibilities…it must not allow itself to assume a secondary role in the regulation of matters squarely within its jurisdiction and core competencies,” Gallagher said, Compliance Week reports. “This, I’m afraid, is exactly the role that the Commission has taken thus far with respect to critical initiatives.”

Additionally, Gallagher said that the intent of the FSOC, which was created to allow for more coordinated communication and information-sharing between regulators, changes the urgency of discussion related to threats to the SEC’s independence.

Gallagher also said that the while FSOC-related regulators are permitted to speak on behalf of their respective agencies, the SEC chairman does not, adding that members and the chairman can only place one vote.

“This means that the chairman has no statutory authority to represent or bind the Commission through his or her participation on FSOC,” Gallagher said, according to Compliance Week. “Yet the chairman does have a say in authorizing it to take certain actions that may affect—and have already affected—markets or entities that the Commission regulates.”

Gallagher said that while the FSOC is intended to identify risks to the U.S. financial system and financial stability, the SEC is not designed to be a market watchdog, adding that the markets regulated by the SEC “are inherently risky, and with good reason.”

“Our mission is not and should not be to make these markets risk-free, nor is it to preserve the existence of any particular firm or firms,” Gallagher said, Compliance Week reports.

The FSOC has the authority to recommend that a regulator, like the SEC, apply new rules or safeguards to limit risky activities.

“It is immensely troubling to think of the FSOC as an institutionalized mechanism for one set of regulators to pressure another in the latter agency’s field of expertise—yet that is exactly what is happening,” Gallagher said, according to Compliance Week.

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